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## Bitcoin, alternate currency

 Quote by 0xDEADBEEF There are a great number of problems with Bitcoin. Which are thoroughly understood by macroeconomics, especially deflation and inflation. The current Bitcoins have the drawback, that they stop being produced at some point. When more people enter the Bitcoin market this leads to increasing prices which leads to hoarding,
I have heard the hoarding critique of alternate currencies a few times. My question is why are alternate currencies any different than standard ones in that what is the incentive to prevent hoarding in conventional currencies?

 Mentor Most currencies have a variable supply and are kept inflationary instead of deflationary. That's one of the main reasons for getting off the Gold Standard.
 Recognitions: Science Advisor Standard currencies usually have a central bank which can unilaterally create or destroy money with the object of maintaining stability relative to other currencies. (Of course this doesn't always work - e.g. in Zimbabwe). Therefore "hoarding money" is unlikely to create any profit in the long term, and since as russ said currencies are usually mildly inflationary, it is most likely to create a loss relative to the cost of goods and services. There doesn't seem to be anything equivalent to a central bank backed up with legal powers for bitcoins, and therefore they would seem to be more like a traded commodity (gold, oil, soya beans, whatever) than a standard currency. In fact they are far more volatile than most commodities. Within the last week, the price has moved from $90 to$142, and today dropped back to $120 following a hacking attack on the largest bitcoin trading site. Asset managers have noticed it. One market strategist has described it as "gold for computer nerds". A fund management company based in Malta started a bitcoin fund last year "for fun", but claims they are now getting "20 phone calls a day" from asset managers looking to invest "up to$100m". The banking crisis in Cyprus has sent some people looking for new places to keep their wealth, of course. (Sources for last 2 paragraphs: front-page article in Financial Times newspaper, 4 April, and BBC news website)
 Admin Blog Entries: 5 Bitcoin has been slowly chugging away. I don't have much interest in using it, but it's quite a phenomenon. Digital 'bitcoin' currency surpasses 20 national currencies in value Read more: http://www.foxnews.com/tech/2013/03/...#ixzz2Ps9iwGbx
 To me, bitcoins seem to be experiencing a classic bubble. The worth of a single bitcoin has increased more than 10X in the last 6 months or so. I'd say it is just a matter of time before the bubble bursts.
 Mentor Yeah, I think they are digital Beanie Babies.

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Gold Member
 Quote by russ_watters Yeah, I think they are digital Beanie Babies.

 Well it popped.
 A few more notes. I don't know exact numbers, but people from the beginning of bitcoin are surely hoarding a vast amount of bitcoins. They are like the central bank. If they decide to cash out, the currency collapses (maybe just temporarily). I don't like the idea of a random 19 year old controlling the value of my savings. Furthermore there seems to be a multi gigabyte transaction log already. It seems that everyone logs the whereabouts of all the coins, right now the market is small, but if it should become big, we'd have Terrabytes of logs sitting on each computer just to be able to do finance. Maybe my technical understanding is not correct, then someone can correct me, but it doesn't seem like Bitcoins can really scale to a global level.
 Here is an interesting take on bitcoins from Paul Krugman, Nobel prize-winning economist.

 Blockchain.info, a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour (a little higher than the U.S. average, lower than some high cost areas like California). That, of course, is in addition to the money devoted to buying and building the mining rigs. The site estimates the profits from the day of mining at about$681,000, based on the current value of Bitcoins. So mining, at least for the moment, is a lucrative business. The trade-off here is that as virtual value is created, real-world value is used up. About 982 megawatt hours a day, to be exact. That’s enough to power roughly 31,000 U.S. homes, or about half a Large Hadron Collider. If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically.